New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Oceania Healthcare FY21 Result&nbsp;— Proof of Concept

OUTPERFORM
Oceania Healthcare (OCA) reported a solid FY21 result with annuity EBITDA of NZ$33m, up +13% on FY20 despite only reporting a 10 month period. We walk away with increased confidence that OCA has now reached an inflection point in earnings as its premium care revenue continues to grow in-line or ahead of our expectations. We continue to foresee a strong annuity earnings growth pathway as its investment into premium care sites matures, additional growth optionality to accelerate its build rate or acquire additional sites is also present given its lowest gearing and highest cash recovery of capex&nbsp; in the sector. Retain OUTPERFORM with an unchanged target price of NZ$1.80.


What's changed?&nbsp;



Earnings:&nbsp;We reduce our FY22 earnings (down -6.7%), primarily a result of increased costs and lower village fees. Minimal changes are made thereafter (FY23E/FY24E -0.2%/-0.7%).



Increased confidence in annuity earnings growth


Our key takeaway from&nbsp;OCA's&nbsp;FY21 result was its continued strong growth in premium care earnings (care DMF and resale gains), a key driver of annuity EBITDA. The care ORA model still remains relatively untested, particularly outside of Auckland, however, we are growing increasingly confident in&nbsp;OCA's&nbsp;ability to grow annuity care ORA earnings as evident in FY21. Care DMF was up almost&nbsp;+50%&nbsp;annualised&nbsp;and care resale&nbsp;gains up +100%, the latter was favourably impacted by strong resale margins at ~19%. Premium annuity care revenue now makes up ~60% of care EBITDA, up from ~10% in FY16.&nbsp;


FY21 reaffirms our positive view


OCA's FY21 result delivered on our expectations and reaffirmed our positive view given; (1) valuation metrics remain undemanding. Trading on 15x P/E and ~20x EV/Annuity EBITDA on our FY22 forecasts, OCA continues to be valued at a significant discount to its larger peers despite, (2) us continuing to forecast it has the fastest annuity EBITDA growth in the sector over the next three years, predominately driven by the frequent recycling of DMF (deferred management fees) and resales gains from the care suite product and, (3) it has the lowest cash drag in the sector. Over the past few years the sector has been characterised by rising debt levels as capital recycling has become harder, which has been most clear for OCA's larger peers. Following the equity raise in March, OCA's gearing is now the lowest in the sector. With the highest cash recovery of capex, OCA's balance sheet and cash flow generation provides ample headroom to accelerate its build rate or fund additional land or village acquisitions.



Aaron Ibbotson
aaron.ibbotson@forsythbarr.co.nz
+64 9 368 0024





Matt Montgomerie
matt.montgomerie@forsythbarr.co.nz
+64 9 368 0124



Oceania Healthcare: FY21 Result — Proof of Concept